ABN AMRO: addition of Chinese shares to MSCI index is an encouraging first step

The MSCI Emerging Markets Index is set to include China A shares. While recommending caution, overall ABN AMRO views this development positively. ABN AMRO's head of Equity Research Annemijn Fokkelman comments, 'Individual Chinese shares tend to be very volatile. For now, anyone planning to invest in emerging Asia should go with a share fund with a prudent spread.'

Last night, indexer MSCI announced plans to expand its emerging markets index in 2018 by adding shares traded in mainland China. 'The addition of these 'A shares' to the MSCI Emerging Markets Index is an important first step,' Fokkelman adds. 'It's an indication that China's financial markets are starting to comply with international standards.'

For the near future, Fokkelman expects the investor sentiment surrounding China to improve, although the impact on the global markets will be small: the new A shares will initially only represent 0.73% of the MSCI Emerging Markets Index (by market capitalisation). This impact may become greater looking further ahead, as more A shares will likely be added to the index.

ABN AMRO is positive about equities, and prefers emerging Asia and Europe to other regions. Investors seeking to profit from the rapid economic growth in Asia would be wise to opt for funds spread across multiple Asian shares, according to ABN AMRO, instead of individual shares of listed companies from mainland China. Corporate governance (the management and regulation of companies) in China currently still falls short of international standards, and individual shares can be highly volatile. A fund with a spread minimises the specific risk of individual shares. Fokkelman adds, 'However, as the Chinese market for A shares matures, it might become interesting to consider taking positions with individual A shares. This recent decision is confirmation of our vision that emerging Asia, and China in particular, are exciting motors for growth.'